Agreement on Climate Change

Framework for a Post-2012 Agreement on Climate Change 2008 Update Framework for a Post-2012 Agreement on Climate Change Table of contents Summary Statement I. Mitigation: Targets and Timetables II. Mitigation: Avoided Deforestation III. Adaptation IV. Technology Development and Cooperation V. Finance Additional Endorsers 4 7 9 13 16 21 28 Global Leadership for Climate Action Co-Chairs Ricardo Lagos President, Club of Madrid; Former President of Chile Timothy E. Wirth President, UN Foundation and Better World Fund; Former US Undersecretary of State for Global Affairs Facilitator Mohamed El-Ashry Senior Fellow, UN Foundation; Former CEO & Chairman, Global Environment Facility Introduction Global Leadership for Climate Action (GLCA) is a high-level task force of world leaders committed to addressing climate change through international negotiations. A joint initiative of the United Nations Foundation and the Club of Madrid, GLCA consists of former heads of state and government as well as leaders in business, government, and civil society from more than 20 countries. Club of Madrid President Ricardo Lagos and United Nations Foundation President Timothy E. Wirth serve as GLCA Co-Chairs, and Mohamed El-Ashry as the group's facilitator and advisor. In September 2007 GLCA agreed upon a Framework for a Post-2012 Agreement on Climate Change, which is attached to this document for reference. The Framework was favorably received at the Berlin meeting of the Gleneagles Dialogue on Climate Change, Clean Energy and Sustainable Development, involving the energy and environment ministers from the 19 major energy-consuming countries and the European Commission. The structure recommended in the Framework—calling for four negotiating pathways focused on mitigation, adaptation, technology, and finance—was reflected in the high-level session on climate change convened at the United Nations by Secretary-General Ban Ki-moon and in the Bali Action Plan adopted by the 13th Conference of the Parties to the United Nations Framework Convention on Climate Change. The Framework has also been endorsed by an additional 34 former heads of state or government, and by other distinguished global leaders, listed at the end of this document. A Proposal of Global Leadership for Climate Action 2 Members Gro Harlem Brundtland Former Prime Minister of Norway; Director General Emeritus, World Health Organization Mary Robinson Former President of Ireland James E. Rogers Chairman and CEO, Duke Energy Kim Campbell Former Prime Minister of Canada Fernando Henrique Cardoso Former President of Brazil Petre Roman Former Prime Minister of Romania José Maria Figueres Former President of Costa Rica Yashwant Sinha Former Finance and External Affairs Minister, India George Soros Founder and Chairman, Open Society Institute, Soros Fund LLC Felipe González Former Prime Minister of Spain Enrique Iglesias Secretary General, Iberoamericana Klaus Töpfer Former Executive Director, UN Environment Programme Lionel Jospin Former Prime Minister of France Ted Turner Chairman, Turner Enterprises Yoriko Kawaguchi Former Foreign and Environment Minister, Japan James Wolfensohn Former President, World Bank Ernesto Zedillo Hong-Koo Lee Former Prime Minister of South Korea Former President of Mexico Shi Zhengrong Chairman and CEO, Suntech Power, China Paavo Lipponen Former Prime Minister of Finland Wangari Maathai Nobel Peace Laureate; Founder, Greenbelt Movement Benjamin Mkapa Former President of Tanzania Valli Moosa Chairman, ESKOM Senior Advisers Junfeng Li Executive Director, China Renewable Energy Association Crispin Tickell Former UK Ambassador to the United Nations Herman Mulder Former Senior Executive Vice-President, ABN AMRO Laurence Tubiana Director, Institute for Sustainable Development and International Relations Rajendra Pachauri Director General, The Energy and Resources Institute David Sandalow Former US Assistant Secretary of State for Oceans, Environment, and Science; Senior Fellow, Brookings Institution Youba Sokona Executive Secretary, Sahara and Sahel Observatory A Proposal of Global Leadership for Climate Action 3 Summary Statement In February 2008 Global Leadership for Climate Action (GLCA) convened in Monaco to review the progress made at the United Nations climate talks in Bali and to consider what additional contribution it could offer in a second phase of work. The task force reviewed a set of five detailed updates, contained herein, that are intended to build on, not supplant, the contents of the 2007 Framework and that provide further elaboration and recommendations to the negotiators working on each of the four key pathways-mitigation, adaptation, technology, and finance—through the Ad Hoc Working Group on Long—term Cooperative Action established at Bali. The GLCA plan of action for 2008, reflected in this update, focuses in particular on two of the pathways—technology and finance. This reflects the fact that further negotiations on mitigation and adaptation may largely be deferred until 2009, in recognition that a new U.S. administration may bring a different perspective to the talks. It also reflects the view that progress on technology development and cooperation and on the creation of new financial mechanisms for addressing the climate challenge is particularly important to developing countries and thus is needed to facilitate a global agreement in 2009. GLCA reaffirms the recommendations on mitigation and adaptation contained in the Framework and expects to return to those subjects in greater detail in 2009. GLCA presents the following summary statement for policy makers: The scale of the threat and the urgency of action continue to increase. Even in the past six months, the scientific evidence is becoming clearer that climate change is occurring at a faster pace than previously thought. For example, it is now possible that the Arctic sea ice will completely disappear in midsummer in as little as five years. Together with the accelerating rate of glacier melt in Greenland and other places around the world, this indicates a climatic destabilization of northern regions that could have profound consequences for the world's weather. In 1992 the United Nations Framework Convention on Climate Change (UNFCCC) established the objective of avoiding "dangerous anthropogenic interference with the climate system." It now appears that the world is approaching or may have surpassed this threshold. This underscores the urgency of action to reduce emissions and to prepare for climate changes that are inevitable. National and global emissions targets must be made still more ambitious and continue to evolve as climate science and technology develop further. The United Nations is both the necessary locus of negotiations and a valuable delivery mechanism for solutions. The Secretary-General has shown remarkable leadership in raising the world's attention to the climate challenge at the highest levels and is mobilizing UN agencies and programs to deliver a coordinated response. This response should include consideration of demographic issues—the global growth in population, the particular vulnerability of poor populations to climate impacts, and the effects of climate-induced migration on national and regional stability. Rapidly industrializing nations must take part in the global response. The division of the world into developed and developing countries will no longer suffice. The importance of the "rapidly industrializing countries" of the world, as they are termed in the Framework, is becoming increasingly obvious given the volume of their emissions and their economic capacity. These include countries not now covered under Annex I of the UNFCCC, such as China, India, South Africa, Brazil, Mexico, Indonesia, and South Korea, as well as important middleincome countries like Chile, Singapore, and the United Arab Emirates. Recognizing that these countries have not made the same historical contribution to the greenhouse gas burden in the atmosphere as fully industrialized countries, and in light of the UNFCCC principle of "common but differentiated" responsibilities, it is not appropriate to expect these countries to take the same actions as developed countries, but A Proposal of Global Leadership for Climate Action 4 neither is it appropriate that they take no action to restrain their emissions' growth. An essential task for the post-Bali negotiations, from the perspective of both policy and politics, will be to engage rapidly industrializing and middle-income countries in commitments to constructive action to reduce their energy intensity under the UNFCCC. Early action should be encouraged in all sectors. As important as the global negotiations under the UNFCCC are, they will lead first to an agreement and ratification process and then to implementation that is at best five years away. Allowing greenhouse gas concentrations to build up in the atmosphere unabated in the meantime is unacceptable. Where sectoral agreements to reduce emissions can be reached, they should be encouraged. For example, businesses can and should show leadership by pursuing common and joint approaches in such energyintensive industries as steel, aluminum, and cement, thus avoiding concerns that early action in one country might lead to competitive disadvantage. National barriers to this kind of collaborative agreement should be eliminated, and credit should be given under the next climate agreement for early action, appropriately verified. The Secretary-General should consider convening sectoral groups at the highest levels to facilitate these discussions. National actions to set and enforce minimum standards for energy efficiency and renewable energy, particularly by developing countries, and to prevent deforestation, should also be recognized, and broader international agreements in these areas should be pursued, not only for emissions reductions, but also for their economic benefits. A uniform global charge for the transportation of goods and passengers by air and sea would fairly reflect their emissions cost without creating competitive distortions. In the update below on Mitigation: Avoided Deforestation, GLCA recommends that the international community should agree promptly on interim methodologies for crediting early action, pending adoption of final rules. This recommendation is also applicable to any other industrial sector that is ready to take early action. Increased efficiency is the most important and attractive near-term opportunity. Energy efficiency offers a particularly important and immediate opportunity for progress, and the scale of this opportunity is very large—the United States has half the energy efficiency of Japan, and China just one-ninth. The McKinsey Global Institute has reported that half of all global growth in emissions could be avoided at a profit, providing an average internal rate of return of 17 percent, based on a global investment of US$170 billion per year—yielding US$900 billion in benefits annually by 2020. That would cap U.S. emissions at today's levels and cut China's emissions in 2020 by 20 percent. McKinsey has identified ways to improve global energy efficiency by an average of 2.5 percent per year, as recommended in the Framework and by the UN Foundation report, Realizing the Potential of Energy Efficiency. The update below on Mitigation: Targets and Timetables recommends a more ambitious target for developed countries of reducing energy intensity by 30 percent by 2020. One of the most important barriers to progress in this area is the misalignment of economic incentives for investment in energy efficiency. This distortion varies by country but frequently involves financial rewards for increased power production and sales. A rethinking and reworking of economic regulation in this area at the national level can pay big dividends in energy and economic efficiency. New mechanisms are needed for monitoring national and sectoral commitments. The GLCA Framework called upon the international community to develop a monitoring and review system and clear criteria for determining when and how various categories of countries should assume stronger climate commitments. The Bali plan of action places particular emphasis on the need to measure, report, and verify not just emissions limitations but also the support provided for technology, finance, and capacity building. Emissions reductions are perhaps most difficult and critical to measure in the area of avoided deforestation, but must also be calculated for global sectoral agreements and national policies on renewable energy and energy efficiency. A Proposal of Global Leadership for Climate Action 5 Assessing the comparative value of such commitments will be challenging, and a clear understanding of how that work will be carried out is an essential element of a final climate agreement. The Secretary-General should convene the heads of agencies with current or potential roles in this area, including but not limited to UNFCCC and the United Nations Environment Programme, to address the issue of responsibility in a rapid and unified way and propose institutional mechanisms for monitoring commitments. Technology development and cooperation should be strengthened. While technologies are clearly available today that would allow significant reductions in emissions from the production and use of energy, in many cases they are not yet fully competitive with their polluting counterparts—either economically or because of some other impediment to widespread use. Yet global investment in energy research and development remains far below its level 25 years ago. This must change. Increased national investment in clean energy technologies will accelerate the development of cheaper, more efficient alternatives, not only reducing emissions but also creating the basis for a new wave of capital stock replacement and economic growth. Clean energy technologies must be designed not only for use at a large scale in industrialized economies but also at an appropriate scale for developing countries. This outcome will flow from greater collaboration between rich and poor countries on the development and adaptation of such technologies for their different national circumstances. The Consultative Group on Clean Energy Research, proposed in the Framework, is potentially an important mechanism for such cooperation. The update below on Technology Development and Cooperation recommends multiplying investment in clean energy technologies several fold in order for them to achieve their full potential and proposes the establishment of three coordinated but separate funds to promote different stages of the technology innovation chain. Detailed treatments of both the governance of these funds and sectoral approaches will be considered by a GLCAsponsored high-level roundtable on technology in summer/fall of 2008. The roundtable should also address the extent to which import tariffs on clean energy technologies retard their diffusion. The outcome of this roundtable will be reflected in the GLCA updates for 2009. Innovative financial approaches will make other progress possible. The world must step up to the climate challenge financially, but so far a tremendous disparity exists between the size of the financial challenge—which we estimate to be US$50 billion a year—and the scale of commitments to date. Compared to the need and opportunity, the contributions to the Global Environment Facility have been minuscule; the investment in research and development, including recent pledges to one or more technology funds, has been insufficient; and the Adaptation Fund has not been provided with a funding source or governance structure that is adequate to the need. This financial challenge may seem daunting, but the scale of spending on energy is already large. The International Energy Agency estimates that US$22 trillion will be needed in the energy sector between now and 2030, regardless of whether climate change is a factor. What is needed is to redirect these funds to technologies that minimize greenhouse gas emissions. Sizeable revenue streams are also expected to flow from government intervention to limit emissions, whether through taxes or a cap-and-trade scheme—easily enough to provide a share for adaptation and collaborative technology development. There has been a significant increase in private venture capital being invested in clean energy technologies. The update below on Finance recommends that the fund supporting the diffusion of clean technologies should coordinate closely with the private-sector in order to attract private capital. GLCA is planning a high-level roundtable on finance in the fall of 2008 to examine the institutional setup, the structure and governance, and the complementarity and coordination among various financing options. The outcome of this roundtable will be reflected in the GLCA updates for 2009. GLCA will continue to provide recommendations that will be useful and relevant to the Ad Hoc Working Group on Longterm Cooperative Action. GLCA will also provide another update in 2009 that will take into account the outcomes of the two roundtables on technology and finance that will be convened this summer/fall, the Conference of the Parties at Poznan, and GLCA's further thinking on mitigation and adaptation. A Proposal of Global Leadership for Climate Action 6 I. Mitigation: Targets and Timetables Progress in Bali: In the Bali Action Plan, the Conference of the Parties (COP) recognized that "deep cuts in global emissions will be required to achieve the ultimate objective of the Convention" and emphasized the urgency of action, "as indicated in the Fourth Assessment Report of the Intergovernmental Panel on Climate Change." The COP did not move forward on targets and timetables for emission reductions, but decided to seek agreement by 2009 on "a shared vision for long-term cooperative action, including a long-term goal for emission reductions" to prevent dangerous anthropogenic interference with the climate system. Decision 1(b)(i) calls on all developed countries to consider: Measurable, reportable and verifiable nationally appropriate mitigation commitments or actions, including quantified emission limitation and reduction objectives, while ensuring the comparability of efforts among them, taking into account differences in their national circumstances. For developing countries, Decision 1(b)(ii) calls for the consideration of: Nationally appropriate mitigation actions in the context of sustainable development, supported and enabled by technology, financing and capacity-building, in a measurable, reportable and verifiable manner. Unlike for developed countries, there is no mention of quantified emission limitation or reduction objectives for developing countries. Comparison to the Framework: Global Leadership for Climate Action (GLCA) recommended that all countries should commit to reduce collectively global emissions by at least 60 percent below 1990 levels by 2050. As a first step, developed countries should reduce their collective emissions by 30 percent by 2020. Recognizing that "dangerous anthropogenic interference" cannot be avoided by developed countries acting alone, GLCA recommended that rapidly industrializing countries should commit to reducing their energy intensity by 30 percent between 2013 and 2020. Other developing countries should commit to reducing their energy intensities consistent with their responsibilities and capabilities. GLCA called upon the international community to "develop a monitoring and review system and clear criteria for determining when and how various categories of countries should assume stronger climate commitments." GLCA's recommendations for emissions reductions are at the middle of the range that the Intergovernmental Panel on Climate Change (IPCC) says would be necessary to keep global temperature rise to approximately 2 to 3 °C (corresponding to atmospheric concentrations of 450 to 550 parts per million (ppm) carbon dioxide (CO2) equivalent). GLCA's recommendations correspond roughly to a 500 ppm world with a 2.5 °C temperature rise. GLCA proposed three categories of countries—developed, rapidly industrializing, and other developing—but the Bali Action Plan and the IPCC continue to distinguish only between developed and developing countries. While many have proposed that rapidly industrializing developing countries take on emissions intensity or energy intensity targets, most have shied away from recommending numerical targets. The GLCA recommendation that rapidly industrializing countries reduce their energy intensity by 30 percent over an eight-year period (2013-2020) is similar to China's goal of reducing its energy intensity by 4 percent per year between 2006 and 2010. While this GLCA recommendation is a challenging target, others have recommended that both developed and developing countries reduce their carbon intensity between 2003 and 2050 by 5 percent per year. In January 2008 the Japanese Prime Minister proposed a global improvement in energy efficiency of 30 percent by 2020. GLCA now recommends that developed countries also reduce their energy intensity by 30 percent by 2020. Recommendation: Developed countries should reduce their energy intensity by 30 percent by 2020. GLCA did not recommend actual values for post-2020 targets for the rapidly industrializing countries. However, GLCA recommended in the Framework that the international community should develop clear criteria for graduation of different groups of developing countries so that they can assume increasingly more stringent post-2020 emissions reduction targets. A Proposal of Global Leadership for Climate Action 7 To effectively address climate change, GLCA called for establishing a carbon price through taxes, trading, or regulation. Whether the targets adopted have to do with emission reductions or intensity reductions, countries can choose from the full range of policy instruments available to them to achieve their targets. Additional Issues and Recommendations 1. Target-Setting Formulas It is far easier for negotiators to agree on a reduction target for the world as a whole or a block of countries than for individual countries. The history of the Kyoto Protocol and the Marrakesh Accords suggests that the reduction targets and special provisions for individual countries are dependent upon their bargaining and negotiating strengths, often leading to a case-by-case quagmire. In order to avoid a repetition of onerous negotiations in every commitment period, some have suggested that commitments be based upon formulas combining indicators of responsibility and capability. Such formulas would be hard to negotiate, but once decided could apply fairly and transparently to all countries. The scientific work of the Ad Hoc Group for the Modeling and Assessment of Contributions to Climate Change1 has established methods for estimating contributions of countries and regions. Indicators of capability (perhaps based on per capita income) are also needed. Combining the two would provide one way to make operational the concept of "common but differentiated responsibilities and respective capabilities." Recommendation: Climate research organizations should develop a transparent formula that combines indicators of responsibility and capability to make operational the concept of "common but differentiated responsibilities and respective capabilities." 2. Sectoral and Policy-Based Approaches As important as the global negotiations under the United Nations Framework Convention on Climate Change are, they will lead first to an agreement and ratification process and then to implementation that is at best five years away. Where sectoral agreements to reduce emissions can be reached, they should be encouraged. Both the Bali Action Plan and the GLCA recommendations emphasized sectoral approaches and sector-specific actions within a comprehensive process; for example, targeted agreements in industrial sectors such as power, transportation, aluminum, steel, cement, buildings, and appliances. National barriers to this kind of collaborative agreement should be eliminated, and credit should be given under the next climate agreement for early action, appropriately verified. Renewable energy and energy efficiency agreements also could apply to all countries, and should not be limited to emissions intensity targets such as have been recommended for rapidly industrializing countries. National actions to set and enforce minimum standards for energy efficiency and renewable energy, particularly by developing countries, should also be recognized, and broader international agreements in these areas should be pursued, not only for emissions reductions, but also for their economic benefits. In a recent report, the McKinsey Global Institute analyzed more than 250 options for efficiency gains, shifts to lowercarbon energy sources, and expanded carbon sinks. It found that about half of these options could be achieved at zero net cost (initial capital costs being offset by savings in future energy costs). The Institute concluded that "concerted efforts to reduce GHG [greenhouse gas] emissions would certainly stimulate economic forces and create business opportunities that we cannot foresee today and that may accelerate the rate of abatement…thereby reducing the overall cost." 3. Sinks and Avoided Deforestation Reducing deforestation presents a cost-effective opportunity to reduce the accumulation of CO2 in the atmosphere. Because of the complexity and importance of this issue, a separate update has been prepared. Formed in 2003 at the request of the Subsidiary Body for Scientific and Technological Advice, which supports the Conference of the Parties to the United Nations Framework Convention on Climate Change. 1 A Proposal of Global Leadership for Climate Action 8 II. Mitigation: Avoided Deforestation Progress in Bali: In Bali, the Conference of the Parties (COP) took on the issue of avoided deforestation. The 1997 Kyoto Protocol, through its Clean Development Mechanism (CDM), allowed developed countries to meet part of their Kyoto emission targets by investing in emission mitigation projects in the developing world. Carbon "credits" from reforestation (replanting) and afforestation (planting never-forested land) are eligible under the CDM, but projects that reduce emissions from deforestation and forest degradation are not eligible. In that way, Kyoto provided no incentives to reduce the largest source of emissions from the forest sector. Decision 1(b) (iii) of the Bali Action Plan calls for the consideration of: Policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries; and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries. The COP also agreed on "reducing emissions from deforestation in developing countries: approaches to stimulate action." In this decision, the COP set out an ambitious program to resolve methodological questions relating to measurement, monitoring, verification, and other technical issues regarding forest carbon. Initial scientific and technical recommendations are expected at the next COP in December 2008, and conclusions on remaining methodological questions at the 2009 COP. The Government of Norway announced at Bali that it will make available US$0.5 billion per year for five years as an incentive to address avoided deforestation and forest degradation in tropical countries. Comparison to the Framework: Global Leadership for Climate Action (GLCA) recommended that "to reduce the emissions of carbon dioxide cost-effectively a full range of interventions to create and maintain biological sinks of carbon should be included in a post-2012 climate change regime in order to capture the many co-benefits of sustainable livelihoods, land management, forestry, and biodiversity conservation." Land use changes, mainly tropical deforestation, account for roughly 20 percent of global emissions, a share greater than either the global transport or industrial sectors. Tropical forests—which hold most of the world's forest carbon— are disappearing at an alarming rate (5 percent per decade globally). Each year more than 13 million hectares of forest are lost, along with their ecosystem functions and countless, largely unknown species. Over 90 percent of global deforestation today occurs in two dozen tropical forest countries. These UN figures underestimate emissions from the forest sector because they do not account for forest degradation—such as the conversion of a rich primary forest into a less vegetated savannah-like ecosystem. The major drivers of tropical deforestation and forest degradation today are farming, ranching (accounting for approximately 75 percent), and logging. Absent a dramatic change, by the middle of this century only fragmented islands of tropical forest may remain, with potentially devastating consequences for the poor and for the planet. According to the Stern Review, investing US$5 billion per year for forest conservation could reduce global deforestation by 70 percent. The World Bank believes the opportunity cost of forest conservation is less than US$5 per ton of carbon dioxide in several major developing countries—far less than half the price of non-forestry carbon credits today in Europe. With the right rules in place, global carbon markets could generate several billion dollars a year for forest carbon management. Strategies to reduce deforestation have other benefits—the conservation of biodiversity, the provision of ecosystem goods and services, especially water resources, and the improvement of livelihoods for neighboring communities. Seventy percent of known terrestrial species live in forests, particularly in the tropics. Those people living in extreme poverty are particularly dependent on forests for their food, water, fuel, and livelihood. While Bali was a good beginning, more can and should be done, given the urgency of the climate crisis and the many benefits of forest conservation. A Proposal of Global Leadership for Climate Action 9 Additional Issues and Recommendations 1. Technical Methodologies A decade ago, carbon abatement and sequestration programs in forests were considered high-risk. Many believed that changes in forest carbon stocks could not be measured, monitored, or verified. Others argued that reducing deforestation in some locations might simply increase deforestation elsewhere (commonly called "leakage"), assuming global demand for crops, livestock, and timber remained unchanged. Another concern was the "permanence" of forest emissions abatement. Forests change constantly—expanding, burning, and evolving. Forests spared from logging today could be logged tomorrow or destroyed by fire, pests, or climate change. In the Kyoto process, the international community failed to find solutions to these technical challenges. Therefore, forests remain outside the mainstream of climate policy and regulation, not only under the Kyoto Protocol but also under European emission limitation systems. Thanks to new scientific improvements and a deeper understanding of the issues, past technical objections now appear manageable. Many experts agree that existing satellite technology, together with on-the-ground sampling, can provide accurate and affordable information about forest carbon stocks at a range of scales (global, regional, national, and local). As with leakage in other sectors, leakage in the forest sector can only be eliminated by developing a global policy framework that applies to forests everywhere. Leakage can be minimized by evaluating and measuring changes in forest carbon stocks at a sufficiently large scale. At the project or landscape scale, scientists have demonstrated that leakage is measurable and can be taken into account when verifying changes in carbon stocks. It seems clear that while technical challenges are not trivial, credible solutions to remaining methodological issues exist. Technical methodologies must be evaluated based not only on their environmental integrity but also their cost effectiveness. The international community should strike a balance between its desire for quality forest carbon credits and its interest in creating simple, workable policy frameworks that can transform the forest sector for the benefit of climate, biodiversity, and local communities. Recommendation: A balance must be struck between safeguarding the quality of forest carbon assets and the urgency of improving sustainable forest management. Methodological issues should be resolved quickly and pragmatically, in order to provide incentives for forest conservation and restoration. While ensuring the environmental integrity of forest carbon is essential, overly restrictive rules could undermine the potential for both costeffective action and new financing. 2. Sustainable Forestry Incentives Sound management of forest carbon is a global public good. Rewarding developing countries that manage forests for their global benefits is both necessary and fair. Developing countries have diverse national circumstances and interests. No single sustainable development mechanism will work for all tropical forest countries. Therefore, the next international climate agreement should stipulate that developing countries will have at least three options: 1. Developing countries should have the option of generating forest carbon credits through tangible projects, analogous to today's CDM activities. Unlike the CDM, however, all types of forestry projects should be eligible, including activities that reduce emissions from deforestation and forest degradation. For the least-developed countries in particular, which have large forests but have not benefited greatly from the CDM so far, this project mechanism may provide the most realistic and immediate means to mitigate emissions and generate new funding for sustainable forestry. 2. Developing countries should have the option of generating forest carbon credits by enacting and implementing major new policies and programs. For example, a developing country that enacts and enforces new laws that limit forest conversion for agriculture should be able to sell credits reflecting the actual mitigation benefits of the changes in policy. Similarly, a country that increases government spending on forest law enforcement in ways that demonstrably reduce illegal logging should have the right to sell an appropriate quantity of forest carbon credits to international markets. For both policies and programs, these calculations must reflect actual rather than projected results to ensure proper implementation and maintain environmental integrity. Just as with forestry projects, program- and policy-based credits will need to take leakage in account. A Proposal of Global Leadership for Climate Action 10 3. Developing countries should have the option of generating forest carbon credits by establishing and enhancing sectorwide emission mitigation goals. These goals could be expressed as a percentage change from a projected national or regional deforestation rate under a business-as-usual scenario. These sector-wide goals should be legally binding yet subject to non-punitive compliance procedures that reflect developing country national circumstances. Because sectorwide emission mitigation goals are most likely to result in substantial and permanent mitigation, minimize leakage, and mobilize new financial resources for sustainable development, the international community should create the strongest possible positive incentives for developing countries to pursue this approach. Recommendation: Reflecting the diversity of their national circumstances and interests, developing countries should have the option to generate forest carbon credits by designing and implementing projects, policies, programs, or sector-wide goals. The international community should adopt accounting and crediting rules that ensure against double counting of credits and take into account potential leakage. Because sector-wide approaches offer many benefits, policy frameworks should encourage countries to pursue this approach through strong positive incentives. 3. Equal Treatment The international community must decide whether forest carbon credits should be treated identically to other, more traditional types of credits, such as those from renewable energy. Skeptics have advanced two reasons why forest carbon credits ought not to be fully fungible and interchangeable with other carbon credits. First, some have argued that the technical issues noted above make forestry credits less "real" (i.e., the climate benefits are questionable). They argue that forestry credits should be treated differently than other greenhouse gas offsets so as not to undermine the integrity of the carbon market. Second, some fear that forest carbon credits will be "too inexpensive" and "flood the market," thereby driving the value of credits down and reducing the incentive to innovate and adopt clean energy technologies, thus increasing long-term mitigation costs. However, as noted above, forest carbon can be measured, monitored, and verified, and workable solutions exist to the problems of leakage and permanence. The international community can take the potential abundance of forest carbon into account when setting new emission mitigation goals. Artificial limits on the forest carbon market would merely reduce new financing for sustainable development in developing countries, increase mitigation costs, and slow action against climate change, while increasing the complexity and inefficiency of global carbon markets. Recommendation: Forest carbon from developing countries should be fully fungible with other credits, and ought not to be limited or constrained. 4. Demonstration Projects The Bali Action Plan envisions concluding an agreement in December 2009 that would enter into force in 2013. What can be done in the meantime? The first and easiest step that countries should take now is to design and implement large-scale demonstration projects to conserve forest carbon, particularly by reducing emissions from deforestation and forest degradation. In Bali, the World Bank announced the creation of the Forest Carbon Partnership (FCP), a public-private effort to reduce emissions from deforestation and forest degradation in developing countries by offering performance-based positive financial incentives. Already, more than 20 developing countries have expressed an interest in participating in the program. Yet, the World Bank envisions that its US$200 million FCP incentive fund will purchase carbon credits in only three to five countries. Worldwide, official development assistance for sustainable development in rural communities exceeds US$10 billion per year. Much more must be done to mainstream forest conservation into existing lending and development assistance programs. In addition, international institutions and donor governments should develop insurance and other risk management mechanisms for forest carbon as a way of unleashing the potential of the private sector to mobilize capital. A Proposal of Global Leadership for Climate Action 11 Recommendation: Both developed and developing countries should undertake large-scale demonstration activities that provide positive financial incentives for forest conservation and restoration. Developed countries should assist developing countries in building their capacity to measure, monitor, and verify emission mitigation, particularly at the national level. Positive financial incentives for avoided deforestation activities should be restricted to places where credible procedures exist to establish additionality and control leakage. 5. Credit for Early Action An even more effective means of mobilizing immediate action would be to provide assurances that forest conservation and restoration today will have value under future global and national policy frameworks. In other words, forest conservation and restoration activities undertaken prior to the entry into force of the new climate agreement should count toward new emission mitigation efforts. Private companies in developed countries that invest in forest conservation and restoration in developing countries should receive credit toward emission reduction efforts. Private investment would greatly increase if investors had confidence that new forestry activities would help their compliance with future emission mitigation targets. To provide credit for early action, the international community must agree to minimum methodologies and quality control standards for forestry credits. As noted above, a number of technical issues remain open, including issues of monitoring, measurement, permanence, and leakage. While solutions exist to these technical challenges—as also noted above— reaching an international consensus on long-term rules could take years. Therefore, the international community at the next COP should agree to interim rules that will govern the "credit for early action" market until final rules are adopted. These interim rules should stipulate that forest carbon credits developed under those rules will count toward future emission reduction efforts regardless of the nature of the final rules. By providing a "safe harbor" for countries and companies that invest today, the international community can mobilize action now without compromising future climate policy frameworks. Recommendation: To encourage immediate action and to accelerate opportunities for sustainable development in tropical forest countries, the international community should agree in December 2008 that reductions in emissions from deforestation and forest degradation achieved from 1 January 2009 until the entry into force of the next climate agreement will count toward compliance with post-2012 emission reduction targets. The international community also should agree in 2008 on interim methodologies for crediting early action, pending adoption of final rules. A Proposal of Global Leadership for Climate Action 12 III. Adaptation Progress in Bali: Decision 1(c) of the Bali Action Plan calls for enhanced action on adaptation, including consideration of: (i) International cooperation to support implementation of adaptation actions including through vulnerability assessments, prioritization of action, financial needs assessment, capacity-building and response strategies, integration of adaptation actions into sectoral and national planning, specific projects and programmes, means to incentivize the implementation of adaptation actions, and other ways to enable climate-resilient development and reduce vulnerability of all Parties…; (ii) Risk management and risk reduction strategies, including risk sharing and transfer mechanisms such as insurance; (iii) Disaster reduction strategies and means to address loss and damage associated with climate change impacts in developing countries that are particularly vulnerable to the adverse effects of climate change; (iv) Economic diversification to build resilience. Four of the six articles of Decision 1(e) of the Bali Action Plan called for enhanced action on investment in adaptation, including consideration of: (ii) Positive incentives for developing countries for the enhanced implementation of national mitigation strategies and adaptation action; (iii) Innovative means of funding to assist developing countries that are particularly vulnerable to the adverse impacts of climate change in meeting the cost of adaptation; (iv) Means to incentivize the implementation of adaptation actions on the basis of sustainable development policies; (vi) Financial and technical support for capacity-building in the assessment of the costs of adaptation in developing countries, in particular the most vulnerable ones, to aid in determining their financial needs. In addition, the Conference of the Parties (COP) established an Adaptation Fund to finance projects and programs in developing countries. The Fund will complement other United Nations Framework Convention on Climate Change (UNFCCC) funds managed by the Global Environment Facility (GEF), as well as the Strategic Priority on Adaptation mechanism, which is part of the GEF Trust Fund. The Adaptation Fund will be financed with a 2 percent share of the proceeds from the sale of certified emissions reductions under the Clean Development Mechanism (CDM), a formula that is expected to yield between US$80 and US$300 million per year until 2012. The Adaptation Fund will be supported by a secretariat (the GEF) and a trustee (the World Bank). The Fund will be supervised and managed by a 16-member Adaptation Fund Board whose members will be balanced regionally and between developed and developing countries. Comparison to the Framework: Global Leadership for Climate Action (GLCA) noted that even substantial reductions in global emissions of greenhouse gases will not avoid the serious impacts of climate change to which the world is already committed and that will affect all countries to different degrees, with the poor in developing countries being the most vulnerable and the least able to adapt. Least-developed countries lack the information, institutions, and the financial resources needed to assess their vulnerabilities and to take the necessary actions to adapt. A Proposal of Global Leadership for Climate Action 13 The actions taken in Bali are broadly consistent with GLCA's recommendations on specific adaptation strategies and on "a substantial package of financial support" for adaptation. Finance is discussed in some detail in a separate update. The UN Development Programme's 2007/2008 Human Development Report called for US$86 billion annually in new and additional financing for adaptation in developing countries by 2015. By mid-2007, actual multilateral financing delivered under the umbrella of the UNFCCC had reached a mere US$26 million. Even if carbon trading volumes under the Kyoto Protocol were at the high end of what is expected, additional funding from the Adaptation Fund will amount to hundreds of millions of dollars, well short of the billions needed. Compared to the magnitude of the issue and the funding required to address it, existing funding and current planning for additional funding is woefully inadequate. The functions envisioned for the Adaptation Fund Board are similar in scope to the responsibilities of the CDM Executive Board. Some of the major challenges faced by the CDM Executive Board have been its over-bureaucratization, the slow pace of the review of projects, and a considerable backlog in the approval of methodologies. A wellestablished and efficient support structure will be critical to the effective functioning of the Adaptation Fund Board. Indicators and measures to assess its performance should be established. Additional Issues and Recommendations 1. National Adaptation Plans Climate change is exposing vulnerable people to new risks. Reactive, piecemeal measures will prove insufficient. Enabling people to manage these risks requires public policies that build resilience through investment in infrastructure, human capacity, and improved disaster management. Accordingly, the GLCA Framework stated that a national policy response that would increase resilience to climate vulnerability and change should be anchored in a country's framework for economic growth and sustainable development and integrated in its poverty reduction strategies. In most developing countries, adaptation planning has been a marginal activity focused on building infrastructure intended to provide protection against extreme climatic events. Although infrastructure is a critical area, adaptation efforts should be much broader. Climate change risk assessment needs to be built into all aspects of policy planning. The magnitude of this task—which is especially daunting for developing countries with limited capacity—will require a transformational change in government practices involving far-reaching reforms across the entire economy. To date, 20 National Adaptation Plans of Action (NAPAs) have been produced in developing countries with support from the GEF's Least Developed Countries Fund. NAPAs are intended to identify urgent and immediate adaptation needs, while at the same time developing a framework for bringing adaptation into the mainstream of national planning. While NAPAs are a good first step and include excellent analytical work, they are limited in scope and suffer from inadequate financing—each country is initially allocated US$200,000 for the formulation of a NAPA. In addition, NAPAs' project-based approach to adaptation planning, which addresses only immediate and urgent needs, provides a limited view of the scope required for effective adaptation. The risks and vulnerabilities that come with climate change cannot be dealt with through one-time projects. They have to be brought into the mainstream of poverty reduction strategies and development planning, for example, through the Poverty Reduction Strategy Papers, which provide a framework for national economic growth and poverty alleviation policies and partnerships with donors. Recommendation: National Adaptation Plans of Action should be strengthened, and Poverty Reduction Strategy Papers should be updated to include analyses of developing countries' climate change risks and vulnerabilities, to identify priority policies for reducing vulnerability, and to provide estimates of financing needs. A Proposal of Global Leadership for Climate Action 14 2. Development Assistance to Increase Resilience Climate change will impede development efforts, increase risks to public health, frustrate poverty alleviation programs, damage fragile ecosystems, and exacerbate migrations from waterlogged, water-scarce, or food-scarce regions, and thus threaten global security. There is an important role for official development assistance in financing adaptation measures, including human and institutional capacity building, and in reducing vulnerability of agriculture, forests, and water resources. Existing development assistance programs—such as rural development, health, nutrition, and education—will all be directly affected by climate change. New and additional resources will be needed to mainstream adaptation across aid programs, over and above the existing programs. Similarly, businesses and international financial institutions need to integrate climate change into their activities and make their investments less susceptible to climate change. Recommendation: To be effective, aid to vulnerable developing countries for economic development and poverty alleviation should include funding for increased resilience to the impacts of climate change. All countries should cooperate in identifying a package of reliable funding to help least-developed countries build resilience to climate risks. Such funding could draw on public and private finance and the carbon market. 3. Information, Science, and Technology Information is crucial to planning for adaptation to climate change. Countries lacking the capacity and resources to track meteorological patterns, forecast impacts, and assess risk cannot make good decisions or provide quality information to their citizens. Capacity for monitoring and forecasting climate can significantly affect livelihoods. For agricultural producers, for example, knowing early about abrupt changes in rainfall patterns or temperature can make the difference between a bountiful harvest and crop failure. Effective adaptation will require broader planning capacity in all relevant government departments in developing countries. Local scientists should be supported for conducting research and monitoring climate impacts on various sectors in their countries. The technologies needed to cope with the direct and indirect impacts of climate change similarly need to be widely deployed. As the GLCA Framework suggests, for example, drought-, flood-, and salt-resistant crops could be developed and disseminated to address shifting rainfall patterns and sea-level rise, respectively. The Framework recommends that new scientific and technological research centers for adaptation in agriculture be established in developing countries by the Consultative Group on International Agricultural Research, especially in Africa. A Proposal of Global Leadership for Climate Action 15 IV. Technology Development and Cooperation Progress in Bali: In a last-minute decision, some developing-country negotiators at the Bali Conference of the Parties proposed wording in the Bali Action Plan that links mitigation action by developing countries to "measurable, reportable and verifiable" support by developed countries for technology, finance, and capacity-building. Decision 1(d) of the Bali Action Plan calls for enhanced action on technology development and transfer to support action on mitigation and adaptation, including consideration of: (i) Effective mechanisms and enhanced means for the removal of obstacles to, and provision of financial and other incentives for, scaling up of the development and transfer of technology to developing countries in order to promote access to environmentally sound technologies; (ii) Ways to accelerate deployment, diffusion and transfer of affordable environmentally sound technologies; (iii) Cooperation on research and development of current, new and innovative technology, including win-win solutions; (iv) The effectiveness of mechanisms and tools for technology cooperation in specific sectors. Comparison to the Framework: The Bali Action Plan identifies many of the same issues for action as the Framework did, albeit with less specificity. Some of the principal obstacles to technology transfer, for example, are the issues of competitiveness and protection of intellectual property rights. Global Leadership for Climate Action (GLCA) recommended formation of a Consultative Group on Clean Energy Research (CGCER) to facilitate international collaboration on the development of low-cost, low-carbon technologies and the exchange of information about clean energy technologies. Such a group could pay for patents or licensing fees to enable cleaner technologies to be deployed in developing countries. The private sector is best equipped to make incremental improvements in the deployment and diffusion phases that can help reduce costs. However, technologies such as solar, wind, environmentally sustainable biofuels, hydrogen, energy efficiency, and carbon capture and storage need additional breakthroughs that will only be possible with an infusion of public funds. Aggregate public expenditures for research and development (R&D) should be doubled to US$20 billion per year, mostly in the North; a CGCER could also support technology R&D and act as a catalyst for South-South cooperation. The deployment phase often requires considerably more resources than the R&D phase. Costs of cleaner and more efficient technologies are much higher (by as much as US$100 million or more for a one-gigawatt coal-fired power plant). Innovative public-private partnerships are needed to encourage the private sector to invest more in post-R&D phases of energy technologies. In the Framework, GLCA proposed a climate fund that would cover the additional costs of cleaner and more efficient technologies in developing countries. Additional Issues and Recommendations 1. Support for Technology Development Thus far, the efforts for technology cooperation under the Framework Convention have focused on "soft" and "low-cost" options that have little effect on the innovation needed to reduce costs and encourage widespread deployment of clean energy technologies. The technology innovation chain has at least three distinct phases with differing requirements. GLCA proposes three different but coordinated mechanisms to fit with each of the three distinct but overlapping requirements of the three stages. A Proposal of Global Leadership for Climate Action 16 The United Nations Framework Convention on Climate Change (UNFCCC) adopted a Framework for Technology Transfer more than six years ago. Efforts under the UNFCCC have focused primarily on the first four "soft" aspects of technology transfer identified in the Framework, namely assessing technology needs, sharing technology information, creating enabling environments, and building capacity. The fifth aspect, "developing mechanisms for technology transfer," has been underemphasized so far. Even the financial mechanism of the UNFCCC (the Global Environment Facility, or GEF), on average since its inception, has only disbursed about US$200 million per year for activities in the climate change area, less than 1 percent of what GLCA believes is needed. Given the scale of response needed to cut greenhouse gas emissions in half by 2050 at acceptable costs, a clean technology revolution is required. Renewable energy technologies, energy efficient technologies, and carbon capture and storage all need additional breakthroughs to achieve their full potential, which is significant. A recent report by REN21 (the Renewable Energy Policy Network for the 21st Century) assessed the potential of renewable energy technologies in the world's 20 largest economies, which consume 80 percent of the world's primary energy and produce a similar share of global greenhouse gas emissions. The report shows that the overall technical potential of renewable energy is several times larger than current total energy demand. This is particularly true for electricity generation. Solar photovoltaic electricity can be utilized almost everywhere, and its potential alone is many times higher than estimated global electricity consumption. Concentrating solar, onshore wind, ocean, and biomass energy also have large potentials, each of the order of magnitude of future electricity consumption. The potentials of hydroelectric, geothermal, and offshore wind energy, on the other hand, are more site-specific. By 2050, renewable energy could contribute at least half of all electricity generation in each of the large economies and, in some cases, could even contribute 90 percent. In the medium term (2030), wind energy may achieve a considerable share, in addition to hydropower. In the short-to-medium term, renewable energy can meet a high proportion of incremental energy needs when combined with energy efficiency to reduce demand, especially in the heating and cooling sector. Increased energy efficiency, long recognized to be the cheapest, cleanest source of energy, has not been pursued by countries as aggressively as new supply in spite of experience showing the large opportunities for gains. While existing published data may underestimate investments in efficiency because they are funded by energy consumers rather than governments, the technical and economic potential of energy efficiency is enormous. An unprecedented influx of capital is changing the clean energy technology landscape, with tens of billions of dollars from private and public sources. However, the reality is that investment in renewable energy and energy efficiency is still driven more by policy than by commercial interests. Recommendation: Investment in clean energy technologies should be multiplied many times to attain the full potential of these technologies. Governments should use clear incentives and disincentives to level the playing field, which is currently tilted because of a perverse combination of subsidies, tax breaks, and externalities. Setting targets, removing barriers, establishing portfolio standards and feed-in tariffs, and providing tax incentives are all proven successful policies. 2. The Innovation Chain Every technology goes through at least three distinct phases prior to full commercialization (see Table 1). These are invention, innovation, and diffusion, sometimes collectively labeled the "innovation chain." Although called a chain, it involves overlaps and feedback loops. The approach taken in the GLCA Framework is shown schematically in Figure 1. To keep the figure simple, the development and demonstration phases of technology have been merged. The figure shows the close linkage between finance and technology for both mitigation and adaptation. A Proposal of Global Leadership for Climate Action 17 Table 1. Stages of Technology Development and Proposed Funds for North-South Collaboration Broad Category Stage Where? Financial Incentives Examples Proposed Fund and Size Consultative Group on Clean Energy Research Invention ResearchPure or Basic Research-Applied Development Laboratory Early stage: full-cost public funding Second-generation biofuels, ultra supercritical coal plants, advanced solar thermal and photovoltaic, ocean energy, hydrogen, next-generation nuclear Carbon capture and storage [US$5 billion/year] Innovation Pilot Plants Sheltered Environments Mostly public financing Generally cost-shared Clean Energy Technologies Innovation [US$10 billion/year] Sheltered Demonstration and First-of-a-Kind Environments Commercial Plants Diffusion Early Deployment Nascent or Niche Markets Deployment incentives (guaranteed purchases, loan guarantees, tax credits, equity investments) Incremental cost financing, buy-down, learning-by-doing, concessional loans No further incentives required; technology performance standards Hybrid vehicles, wind Fund for the Diffusion and other renewable of Clean Energy energy sources, Technologies Integrated Gasification Combined Cycle, barrier removal for energy efficiency Dissemination (and Scale-Up) “Tilted Playing Fields” Markets [US$20 billion/year] Natural gas combined cycle, large hydro; geothermal; supercritical coal plants Not Applicable Commercialization Mature Markets Figure 1. GLCA Framework + Mitigation Technology Development & Demonstration Mitigation Technology Dissemination MITIGATION FINANCE Adaptation Technology Dissemination + ADAPTATION Adaptation Technology Development & Demonstration A Proposal of Global Leadership for Climate Action 18 GLCA agrees with the Stern Review and with the report of the InterAcademy Council, Lighting the Way: Toward a Sustainable Energy Future, that annual global funding for energy R&D should be doubled from US$10 billion to US$20 billion. While most of these expenditures will be in the North, there is a case for a significant increase in collaborative international research on clean energy technologies. Since many of these technologies will be deployed in the South, they need to be adapted to developing country needs and environments. Therefore, the active participation of end users from inception is essential to the success of this venture. The funds for this collaborative R&D would come from GLCA's proposed climate fund of US$50 billion per year, discussed in the update on finance. Recommendation: A new or existing international institution with a budget of US$5 billion per year should be charged with the responsibility of coordinating research and development, strengthening regional centers for clean energy technologies, and conducting policy assessments in developing countries. A Consultative Group on Clean Energy Research could leverage the work of existing institutions through active coordination, knowledge sharing, and virtual networking. A second need is to empower existing or new international institutions to finance pilot, demonstration, and first-of-akind commercial plants. Demonstration plants test the technical, operational, and commercial feasibility of technologies. Demonstration plants and early production units are often more costly per unit of installed capacity than plants based on existing technology. A single carbon capture and sequestration demonstration facility could cost anywhere from US$0.5 to $1 billion. In the past, publicly funded demonstration plants have often not yielded information useful to the private sector in making decisions about future investments. There is therefore an understandable reluctance among private companies to invest in pilot and demonstration plants, but the private sector must be a partner in the design of such plants for them to yield useful information. Recommendation: A fund eventually reaching US$10 billion per year should be created to support the demon- stration of new clean energy technologies. The GEF's mandate includes the financing of pilot and demonstration projects. A strengthened GEF could become the home for this fund, utilizing its implementing and executing agencies that have a comparative advantage in this area. The third stage in the commercialization process consists of early deployment and dissemination, in which nearcommercial technologies get the final push that enables them to become self-sustaining by reducing costs from learning-by-doing. Currently there are widespread deployment incentives (loan guarantees, guaranteed purchases or procurement, tax credits, equity investments) in many countries, estimated by the Stern Review to be about US$33 billion per year. As GLCA noted in the Framework, the deployment phase requires more resources than the R&D phase. Recommendation: A fund for the diffusion of clean energy technologies with an eventual size of US$20 billion/ year should be established. It should pay for the incremental costs of cleaner energy technologies and also for patents, licensing fees, and removing barriers to deployment of cost-effective energy efficiency measures. While the World Bank Group could be the home for this fund, it should also involve other relevant international entities and have inclusive and transparent governance. (See also recommendation in the update on Finance.) A Proposal of Global Leadership for Climate Action 19 Often models are recommended for energy technology development that have succeeded in other spheres, such as the Consultative Group on International Agricultural Research, the International Thermonuclear Experimental Reactor, the international space station, the European Centre for Nuclear Research, the Marshall Plan, and others that are more specifically U.S.-based, for example, the Manhattan Project, the Apollo Project, or the Defense Advanced Research Projects Agency. The conditions for success were different in each of these examples. We have to learn from both the successes and failures of past attempts from both within and outside of the energy sector. The recommendations above draw on those experiences by being large, targeted, and collaborative, with a greater focus on cost effectiveness. There is also a need for close coordination and cooperation among the three funds, and between the funds and business. We have not discussed how these funds would be governed and managed. The GLCA Framework indicated that they "should have innovative structure and governance that is transparent and inclusive." Additionally, there is considerable interest in sectoral approaches to technology development and diffusion, given the ambitious timeline set by the Bali Action Plan (and recommended by GLCA). GLCA recommended that targeted agreements for industrial sectors such as power, aluminum, transportation, steel, cement, and appliances should be encouraged and incorporated within a new comprehensive agreement. Detailed treatments of both the governance and sectoral approaches will be considered by a GLCA-sponsored high-level roundtable on technology in summer/fall of 2008. The roundtable should also address the extent to which import tariffs on clean energy technologies retard their diffusion. The outcome of this roundtable will be reflected in the GLCA updates for 2009. A Proposal of Global Leadership for Climate Action 20 V. Finance Progress in Bali: Decision 1(e) of the Bali Action Plan calls for "enhanced action on the provision of financial resources and investment to support action on mitigation and adaptation and technology cooperation" including consideration of the following for developing countries: (i) Improved access to adequate, predictable and sustainable financial resources and technical support; (ii) Positive incentives for enhanced implementation of national mitigation strategies and adaptation action; (iii) Innovative means of funding to assist particularly vulnerable countries meet the costs of adaptation to the adverse impacts of climate change; (iv) Means to incentivize the implementation of adaptation actions on the basis of sustainable development policies; (v) Mobilization of public- and private-sector funding and investment, including facilitation of carbon-friendly investment choices; (vi) Financial and technical support for capacity-building in the assessment of the costs of adaptation. Comparison to the Framework: Table 2 compares actual wording of the Bali Action Plan with the relevant sections of the Global Leadership for Climate Action (GLCA) Framework. GLCA had characterized finance as a critical element of any strategy to address climate change. It is not only required for mitigation but also for adaptation and technology development and dissemination. Both public and private finance are needed, including public-private partnerships and climate-friendly investments, scaled up through both national and international frameworks. Governments have an obligation to establish supportive frameworks for private investments, and local capital markets should facilitate longterm investments in adaptation and mitigation measures. Carbon taxes or emission allowance auctions can also raise significant resources that can be used for these and other purposes. The centrality of finance to the GLCA Framework is shown schematically in Figure 2, which also shows the interrelationship between mitigation and adaptation—the more that is done of one, the less that needs to be done of the other. Mitigation and adaptation technologies are divided into those that are at the development and demonstration stages and those that are ready for dissemination. The word "technology" includes both hardware such as equipment, and software such as expertise, capacity building, and needs assessments. A Proposal of Global Leadership for Climate Action 21 Table 2. Finance in the Bali Action Plan and relevant GLCA recommendations. Bali Action Plan GLCA Framework (i) Improved access to adequate, predictable and sustainable financial resources and financial and technical support, and the provision of new and additional resources, including official and concessional funding for developing countries; • Some of the investment will come from redirecting existing flows, and some will be additional. • External funding must be additional to national resources obtained through domestic savings and taxation. • About US$50 billion per year will be needed for activities in developing countries in support of a comprehensive climate change agreement. The source of funding could be a combination of public finance (increases in official development assistance (ODA)) and the carbon market, especially the auctioning of emissions allowances. (ii) Positive incentives for developing countries for the enhanced implementation of national mitigation strategies and adaptation action; • Formation of a Consultative Group on Clean Energy Research could facilitate international collaboration on the development of low-cost, zero-carbon technologies and the exchange of information about clean energy technologies. • To tackle climate change at the requisite scale, clean energy technologies should be made available and utilized by all countries. All developing countries, especially rapidly industrializing countries, should have access to clean energy technologies on preferential terms. • New centers should be established for adaptation in agriculture in developing countries, especially by the Consultative Group on International Agricultural Research in Africa. (iii) Innovative means of funding to assist developing countries that are particularly vulnerable to the adverse impacts of climate change in meeting the costs of adaptation; • International technical and financial assistance should be strengthened and made more coherent in order to respond at the requisite scale to the adaptation needs of least-developed countries. • All countries should cooperate in identifying a substantial package of reliable funding to help countries build resilience to climate risks. Such funding could include public and private finance and carbon markets. • Local capital markets should facilitate long-term investments in adaptation. (iv) Means to incentivize the implementation of adaptation actions on the basis of sustainable development policies; • Adaptation should be seen as part of sustainable development and strategies to alleviate poverty. A Proposal of Global Leadership for Climate Action 22 (v) Mobilization of public- and private-sector funding and investment, including facilitation of carbon-friendly investment choices; • A system of harmonized universal carbon taxes could generate financial resources for the development of clean energy sources and adaptation to climate change. • Innovative public-private partnerships are required to encourage the private sector to invest more in post-research and development phases of energy technologies. • Both public and private finance are essential for adaptation, for technology transfer to developing countries, and to implement successfully any comprehensive and long-term strategy to combat climate change. Climatefriendly investments need to be multiplied through national and international frameworks, and the current international carbon market needs to be enhanced to scale up private flows. (vi) Financial and technical support for capacity building in the assessment of the costs of adaptation in developing countries, in particular the most vulnerable ones, to aid in determining their financial needs. • There is an important role for official development assistance in financing adaptation measures. Effective adaptation will require broader planning capacity in all relevant departments and ministries in developing countries. Local scientists should be supported for monitoring and research on climate impacts on various sectors in their own countries. • The existing funding sources for these purposes (e.g., the Global Environment Facility and the multilateral development banks) should be strengthened and their resources enhanced so that they can play a bigger role in leveraging private finance for mitigation and adaptation and in assisting developing countries to set appropriate framework conditions for private investment and build human and institutional capacity. Figure 2. GLCA Framework + Mitigation Technology Development & Demonstration Mitigation Technology Dissemination MITIGATION FINANCE Adaptation Technology Dissemination + ADAPTATION Adaptation Technology Development & Demonstration A Proposal of Global Leadership for Climate Action 23 The GLCA Framework recommended that the financing package for a comprehensive agreement should initially be US$10 billion per year and ultimately reach a size of US$50 billion per year. Japan, the United Kingdom, and the United States have recently announced commitments to a "technology fund" or funds totaling about US$5 billion. Other donors and sources could double it to about US$10 billion (total, not annual). No details are yet available on the structure and governance of such fund(s), and whether it/they will be managed by existing or new institutions. When funds proliferate, determining complementarity and coordination among them becomes extremely important. The GLCA Framework recommended that a "climate fund" should be established with "an innovative structure and governance that is transparent and inclusive." The World Bank is a logical place to lodge the clean technology diffusion part of such a fund, given its role as trustee of several trust funds as well as its tremendous expertise. However, the history of the Bank's establishment of the pilot phase of the Global Environment Facility (GEF) before its restructuring is instructive and should not be repeated. The GEF during its pilot phase was essentially a donors' club, with non-transparent governance and operations. Recommendation: A fund to support diffusion of clean technologies, housed in the World Bank, should bring together other key partners, including the GEF and the Regional Development Banks. Its governance should reflect the cooperation required to respond to climate change and should include developed and developing countries. Additional Issues and Recommendations Sources of Funds In order to scale up from US$10 billion per year to US$50 billion per year as the GLCA Framework recommends, multiple sources, public and private, are required. The Bali Action Plan emphasized that the financial resources be adequate, predictable, and sustainable. Table 3 summarizes such possible sources and Table 4 the different uses to which the funding might be put. Table 3. Possible Funding Sources Source Increased Official Development Assistance Enhanced GEF Increased Clean Development Mechanism/Joint Implementation Investments Redirected Multilateral Development Banks/Private Sector Flows Auctioning of Allowances Harmonized Carbon Taxes International Aviation Fuel International Marine Bunkers International Air Travel Levy Tobin Tax Range (US$ billion/year) 10-50 1-2 5-25 5-10 0-50 0-50 10-15 10-15 10-15 15-20 Source: Investment and Financial Flows to Address Climate Change (UNFCCC, 2007) A Proposal of Global Leadership for Climate Action 24 1. Increasing Official Development Assistance The level of official development assistance (ODA) from Organisation for Economic Cooperation and Development (OECD) countries to developing countries in the year 2000 (and the average level between 1996 and 2005) was 0.23 percent of gross domestic product. According to information available from the fourth national communications from developed countries, US$11.5 billion was made available through multilateral funds and US$8.5 billion was made available bilaterally to address climate change in the three-year period between 2001 and 2003. The portion of the bilateral funds spent on adaptation between 2000 and 2003 is estimated at US$100 million per year. Since ODA averaged US$58 billion per year, an increase from 0.23 to 0.43 percent would raise an additional US$50 billion per year. 2. Enhancing the Global Environment Facility Since its inception in 1991, the Global Environment Facility (GEF), the financial mechanism of the United Nations Framework Convention on Climate Change (UNFCCC), has disbursed about US$200 million per year for climate change activities, for a total of US$3.3 billion. While the amounts disbursed by the GEF have been modest, because they are grants they have been able to catalyze investments that are about four times larger. GEF funding has played an important role in building capacity, removing barriers to cost-effective energy efficiency and renewable energy projects, and financing higher-risk, longer-term projects such as concentrating solar power plants. However, the UNFCCC document Investment and Financial Flows to Address Climate Change (2007) concludes that if the GEF replenishments continue to rely mainly on voluntary contributions and remain at current levels, the resources will not be sufficient to address mitigation and adaptation needs of developing countries. The GLCA Framework recommended that the GEF should be strengthened and its resources enhanced. A sizeable enhancement of GEF resources would significantly increase its ability to support technology pilot and demonstration plants and leverage private finance. The GEF also has an important role in forestry and avoided deforestation through its biodiversity focal area. 3. Increasing Clean Development Mechanism and Joint Implementation Investments The UNFCCC and the Kyoto Protocol have established additional mechanisms that provide investment and financial flows for both mitigation and adaptation. The Clean Development Mechanism (CDM) and Joint Implementation (JI) help in the transfer of sustainable energy technologies to developing countries and to economies in transition, respectively. In 2006, the value of CDM projects was US$6.9 billion, and the value of JI projects was US$6.3 billion. Two percent of the share of proceeds of CDM projects is set aside for the Adaptation Fund. The UNFCCC Secretariat estimates that the Adaptation Fund could receive anywhere between US$80 and $300 million per year between 2008 and 2012, which means that the value of CDM projects would be 50 times greater, or US$4 to $15 billion per year. Some argue for a similar levy of 2 percent on the share of JI proceeds to raise additional revenues for adaptation. 4. Redirecting Flows From Multilateral Development Banks and Private Sector In the nine-year period from 1997 through 2005, funding for energy projects by the multilateral development banks (MDBs: the World Bank Group and the regional development banks) averaged about US$5 billion per year. This was for all types of energy projects, whether sustainable or conventional. The World Bank Group recently increased its share of financing for renewable energy and energy efficiency, from 13 percent during 1990 through 1994 to 25 percent in 2005 through 2007, reaching 40 percent in 2007. These trends can be expected to continue for all other MDBs as well. Most of these flows go toward financing existing commercial technologies. In 2006, US$100 to $125 billion was invested globally in new power generation. Of this investment, US$32.2 billion was in new renewables (including asset financing, public markets, venture capital, and private equity). While 81 percent of the total investments in sustainable energy are in OECD countries, investment in developing countries is growing rapidly. This welcome upward trend is likely to continue but needs to be scaled up significantly in order to effectively A Proposal of Global Leadership for Climate Action 25 address climate change. Between now and 2030, the International Energy Agency has estimated that US$22 trillion will be needed in the energy sector, with about half of that in developing countries. These funds should be redirected to technologies that minimize greenhouse gas emissions. 5. Auctioning Emission Allowances Developed countries emitted 22.5 billion tonnes of greenhouse gases in 2004 (46 percent of the global total of 49 billion tonnes). If only 70 percent of that amount is allowed to be emitted in 2020, and allowances for those emissions are auctioned, yielding an average price of US$24 per tonnes, then US$378 billion could be raised in developed countries. It is conceivable, therefore, that US$50 billion per year for a climate fund could be raised from these auctions. Of course, the revenues could also be used for other purposes, including lowering tax burdens. 6. Harmonized Carbon Taxes Since the emissions of greenhouse gases on a global scale are so large, even a modest tax of US$1 per tonne of carbon dioxide globally, or about US$2 per tonne in developed countries, could raise the US$50 billion per year recommended by GLCA for a climate fund. 7. Other Possible Sources of Finance Other means of financing that could generate "adequate, predictable and sustainable" resources for dealing with climate change include the so-called Tobin tax, taxes on fuels for international aviation and marine transport, and an international air travel levy. A 0.01 percent tax on international wholesale currency transactions ("Tobin tax") could raise US$15 to $20 billion annually for climate (or other) purposes. Based on a charge of US$6.50 per passenger per international flight, UNFCCC estimates that US$10 to $15 billion per year could be raised. Similarly, auctions of allowances for international aviation and marine emissions could each raise US$10 to $15 billion per year. What Would the Resources be Used For? Table 4 shows illustrative ranges of the projected annual need for various climate response strategies. The other updates enumerate the resource requirements for activities such as incentives for avoided deforestation, technology development and cooperation, and adaptation. There has been a significant increase in private capital being invested in clean energy technologies. The constraints in most developing countries are political, legal, and institutional. Incentives for private investments, including risk sharing and guarantees, are also needed to mobilize private resources at the requisite scale. GLCA is planning a high-level roundtable on finance in the fall of 2008 to examine the institutional setup, the structure and governance, and the complementarity and coordination among various financing options. The outcome of this roundtable will be reflected in the GLCA updates for 2009. A Proposal of Global Leadership for Climate Action 26 Table 4. Potential Uses of Financial Resources Category Avoided Deforestation Adaptation Human & Institutional Capacity Building Collaborative Research and Development Pilot and Demonstration Plants Diffusion of Clean Energy Technologies Total Range (US$ billion/year) 5-10 10-15 1-2 4-5 5-10 15-20 40-62 A Proposal of Global Leadership for Climate Action 27 Additional Endorsers Martti Ahtisaari Former President of Finland Milan Kucan Former President of Slovenia Esko Aho Former Prime Minister of Finland Chandrika B. Kumaratunga Former President of Sri Lanka His Serene Highness Prince Albert II Sovereign Prince of Monaco Luis Alberto Lacalle Herrera Former President of Uruguay Abdulkareem Al-Eryani Former Prime Minister of Yemen Zlatko Lagumdzija Former Prime Minister of Bosnia & Herzegovina Raúl Alfonsín Former President of Argentina Ketumile Masire Former President of Botswana Sadig Al Mahdi Former Prime Minister of Sudan Rexhep Meidani Former President of the Republic of Albania Kofi Annan Former Secretary-General of the United Nations N. R. Narayana Murthy Chairman and Chief Mentor, Infosys Technologies Limited Belisario Betancur Former President of Colombia Anand Panyarachun Former Prime Minister of Thailand Valdis Birkavs Former Prime Minister of Latvia Andrés Pastrana Former President of Colombia Kjell Magne Bondevik Former Prime Minister of Norway Percival Noel James Patterson Former Prime Minister of Jamaica Philip Dimitrov Former Prime Minister of Bulgaria Jorge Quiroga Former President of Bolivia Vigdís Finnbogadóttir Former President of Iceland Poul Nyrup Rasmussen Former Prime Minister of Denmark Vicente Fox Former President of Mexico José Manuel Romero Moreno Vice-President of Fundación para las Relaciones Internacionales y el Diálogo Exterior (FRIDE) Vaira Vike Freiberga Former President of Latvia César Gaviria Former President of Colombia Nafis Sadik Special Advisor to the UN Secretary-General Inder Kumar Gujral Former Prime Minister of India Jorge Sampaio Former President of Portugal António Guterres Former Prime Minister of Portugal Julio Maria Sanguinetti Former President of Uruguay Diego Hidalgo President, Fundación para las Relaciones Internacionales y el Diálogo Exterior (FRIDE) Mario Soares Former President of Portugal Jennifer Mary Shipley Former Prime Minister of New Zealand Anthony Jones Vice-President and Executive Director, Gorbachev Foundation of North America Alejandro Toledo Former President of Peru Wim Kok Former Prime Minister of the Netherlands Cassam Uteem Former President of the Republic of Mauritius A Proposal of Global Leadership for Climate Action 28 www.GlobalClimateAction.com Pr inted on recycled pa per w ith postconsumer content, elementa l chlor ine f ree a nd FSC cer tifi ed.